Sunday, April 29, 2012

Well, surprise, surprise. Data for UK GDP in the first quarter of 2012 was recently released. In Q1 2012 the UK economy contracted by 0.2%, which, after the contraction of 0.3% in Q4 2011, means the UK is now officially in a double dip recession.

George Osborne, the UK chancellor (the British equivalent of the US secretary of the Treasury), is reportedly sticking to his plan of austerity, as you can see in the video below from the BBC announcing the somber news of recession. One can only marvel at those in this report who seem little more than apologists for the austerity, who contend that the overall UK economy is fine, if only it wasn’t for the pesky volatility in the construction industry.

All in all, this demonstrates the uselessness of the hapless Conservative-Liberal Democrat coalition government now ruling Britain.

As I have noted before, Japan was hit by a collapsing asset bubble and debt deflationary crisis in the 1990s. After a stimulus in the early 1990s, in 1996–1997 the Japanese Prime Minister Ryutaro Hashimoto turned to austerity, including personal income and national sales tax increases. This plunged Japan back into recession and sealed its fate in suffering a lost decade that persisted until the early 2000s.

But precious little has been learned from this experience, so it seems.

Some more analysis of the UK and the Eurozone here from Bill Mitchell:

Tuesday, April 24, 2012

Below is an interview with Thomas Palley on a number of issues, including his new book From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics (Cambridge, 2012):

Sunday, April 22, 2012

This is part 4 of notes and trivia on Keynes’s early life. Part 3 is here, which is drawn from D. E. Moggridge’s Maynard Keynes: An Economist’s Biography (London, 1992), and Robert Skidelsky’s John Maynard Keynes: Hopes Betrayed 1883–1920 (vol. 1; London, 1983).

Biographical details of interest and trivia:

(1) On 1 August 1914, Germany declared war on Russia; Britain declared war on Germany on 4 August 1914. Keynes, according to Skidelsky (1983: 295), had no great anti-war feeling, was not a pacifist, but wished to do something for Britain’s war effort, even though he himself did not enlist. Nor was he interested in the political origins of the conflict (Skidelsky 1983: 295).

(2) The UK had the following Prime Ministers in the war years:

Herbert Henry Asquith
1908–1915
1915–1916, coalition government

David Lloyd George
1916–1922, coalition government.

Both politicians are relevant to Keynes’s subsequent career and public service. Indeed, during the First World War, Keynes came to socialise with Prime Ministers and officials at the highest level of the British government.

(3) On 18 January 1915, Keynes stared work at the treasury as assistant to Sir George Paish (Skidelsky 1983: 297). Keynes attended an allied war conference in Paris from 2–5 February on the financing of the war, and helped design the system of British credits to the other allies held at the Bank of England. After May 1915, Keynes became a “member of the Treasury’s No. 1 Division, centrally concerned with the financial direction of the war” (Skidelsky 1983: 303).

(4) From June to July 1915 Keynes was seriously ill with appendicitis and pneumonia (Skidelsky 1983: 303).

(5) From 1916 Keynes believed that the war should be ended by a compromise peace treaty (Skidelsky 1983: 307).

(6) Keynes appeared to be opposed to the military conscription introduced in Britain in January 1916. He applied for exemption both on the grounds of doing work of national importance (at the Treasury) and on the grounds of conscientious objection (Skidelsky 1983: 317–318).

(7) Keynes published The Economic Consequences of the Peace on 12 December 1919. It became a best seller, being translated into German, Dutch, Italian, Russian, Japanese and other languages (Skidelsky 1983: 394). It made Keynes internationally famous.

(8) Other publications of Keynes in these years included the following:

James Galbraith gives a brief talk here on inequality and macroeconomics, at a panel entitled “The Impact of Inequality on Macroeconomics Dynamics,” at the Institute for New Economic Thinking’s (INET) Paradigm Lost Conference in Berlin (April 14, 2012).

N.B. Google has introduced a new style for posting and managing blogs: at the moment, I still don’t like it much!

Saturday, April 14, 2012

Japan’s industrial development is an interesting subject. Japan’s rapid period of industrial take-off came after 1911:

“Industrial production almost doubled between 1914 and 1919 and average profit rates for industry increased sharply … Japan thus emerged as an industrial nation during the Taisho period with a doubling of GNP from 1910 to 1930, and a quadrupling of real output of mining and manufacturing, and of employment in heavy and chemical industries” (Sorensen 2002: 92).

But even the foundation and early development of the industrial revolution in Meiji era Japan (1868–1912) in the 19th century involved significant state intervention (Noland and Pack 2003: 23).

From 1859 and 1869, Japan had been subjected to a number of unequal treaties forcing a liberal trade policy on it, in which tariffs had to be kept below 5%.

One of the most important terms of some of these treaties was to impose low import-export duties, even subject to international control, which went as low as 5% in the 1860s.

It is quite bizarre to see libertarian ideologues normally so insistent on opposing force defending trade liberalisation imposed by European and American coercion. In fact, the Japanese opposition to the “Unequal Treaties” (as they were called) was a major reason for the Meiji revolution in 1868 that overthrew the Shogun.

What was the result of the treaties imposed on Japan? The answer is as follows:

“… immediately after 1859, a flood of imports, unchecked by tariffs, soon devastated the domestic economy. Japan immediately faced a balance-of-payments problem because it depended heavily on imports of raw materials and capital goods indispensable for early industrialization. While the price of rice soared, the outflow of gold that followed was aggravated by the silver standard which Japan adopted, because the price of silver steadily fell vis-à-vis gold throughout the second half of the nineteenth century. Naturally, trade revision was a continuing issue in the early Meiji years.” (Sohn 2005: 22).

Because their hands were tied by treaties forcing a low tariff policy, the Meiji rulers sought to develop Japan’s economy by other means: what we would now call state industrial policy.

One of the first concerns of the Meiji state was to boost exports to stop the outflow of gold. To this end, the Meiji government increased production of tea and silk, by introducing domestic manufacturers to Western technology (Beasley 2000: 104). Shipping services also received government subsidies and patronage (Beasley 2000: 104).

The government also abolished the various currencies of the feudal lords, and by the New Currency Act (1871) created the yen as a national currency. A national central bank was created in 1882, with a monopoly on controlling the money supply in 1884.

The Meiji government also promoted industry and economic development in the following ways:

(1) The government created and built the fundamental public infrastructure in Japan underlying the modern economy: the postal service, railroads and telegraph (Flath 2005: 190). The postal service and the foundations of the railway system were the creation of the state (Beasley 2000: 104).

(2) The Meiji rulers had created industries in the most important areas of industry in that era: iron foundries, arsenals, and some shipbuilding. By 1880, government enterprises included 3 shipyards, 5 munitions works, 10 mines, and 52 factories (Flath 2005: 190). Modern cotton spinning mills were set up by the government in 1881 when the state acquired the latest English technology (Norman 2000: 129).

(3) The government initiated the development of chemical, glass and cement industries, which were then sold off to the private sector when they became profitable (Norman 2000: 127). With this privatisation program after 1882, Japan’s economic development came to have a larger role for private enterprise.

(4) The government used subsidies to other key industries. An important sector, as seen above, was marine transportation and shipbuilding, which received 75% of all subsidies from 1897 to 1913 (Flath 2005: 192). When tariff autonomy was attained again in 1911, Japan raised tariffs on foreign ships from 5% to 15% (Flath 2005: 192). To obtain revenue the government had introduced an agriculture tax in the Land Tax Reform of 1873, and in fact Japan’s state-directed economic development did not depend on foreign capital to a great extent in the Meiji era.

(5) The government created three state-controlled banks by the end of 19th century to direct credit to industrial development (Flath 2005: 192). Between 1885 and 1915 government spending accounted for 35% of capital investment, mainly in the crucial areas of steel, ships and railways (Flath 2005: 192). Throughout the late 19th century, outside agriculture, government provided about 50% of capital investment in Japan (Nafziger 1995: 63).

Although the evidence shows an important role for private enterprise from the 1880s, this was directed and supported by government policy, exactly the same as in Japan’s post-1945 industrial policy.

In short, these Meiji industrial policies set the foundation for Japan’s take-off after 1911.

Friday, April 13, 2012

(1)“Is China the new #1?,” Naked Keynesianism, April 9, 2012.
Some interesting, critical analysis of the rise of China, with the observation that the “Chinese economy ... is partly owned and managed by a network of firms that are fundamentally from developed countries (in the top 20 above, from the US, the UK, France, Germany and Switzerland). The reverse, that is Chinese control of firms in developed countries, is minimal.”

Friday, April 6, 2012

Hyman Minsky (1919–1996) is frequently classified as a Post Keynesian. Minsky’s financialinstabilityhypothesis is an important insight into financial markets and business cycles; Minsky undoubtedly had an affinity with the Post Keynesian school, and his work is taken very seriously in Post Keynesian economics (most notably by Steve Keen). Nevertheless, Minsky was an idiosyncratic Keynesian and the question whether he should be categorised as a Post Keynesian is debateable. Paul Davidson has made the following argument:

“Hyman Minsky is identified [sc. in King 2002: 110] as the second American Post Keynesian … Minsky attended many ‘Post Keynesian’ summer schools in Trieste, Italy as did Kaleckians and many Sraffians who now identify themselves as neo-Ricardians. Accordingly, mere attendance at the Trieste school does not make one a Post Keynesian. Minsky often told me that he never wanted to be identified as a Post Keynesian (hence he fails King’s test of identifying oneself as a Post Keynesian). According to King, Minsky was not an advocate of incomes policies — a hallmark of Post Keynesianism in America. King states that Minsky ‘had no particular objection to aggregate supply-demand analysis or to a tax based incomes policy — but did not regard them as especially interesting or important’ … It is hard to understand why someone who thinks that Keynes’s aggregate supply and demand analysis of the principle of effective demand is neither interesting nor important can be classified as a Post Keynesian … In reality Minsky was, and always wanted to be, a mainstream Keynesian who used the Modigliani variant of the ISLM system and whose major distinction from other mainstream Keynesians was that he possessed knowledge of actual real world financial markets. His ‘inherently unstable’ financial fragility hypothesis … was based on his reading of the activities on financial markets during the period between the onset of the Great Depression and the beginning of the Second World War …. Since Minsky refused to adopt Keynes’s principle of effective demand as the basic analytical system, and instead adopted an analytical structure that relied on some of the restrictive axioms of the special case classical theory, it is difficult for me to understand why King classifies Minsky as a Post Keynesian much less the ‘second US Post Keynesian’” (Davidson 2003–2004: 252–253).

Yet it is very difficult to classify Minsky as a neoclassical synthesis Keynesian or New Keynesian either, for both these varieties of Keynesian theory were subject to heavy criticism in these papers of Minsky:

“Minsky thought so much of the mainstream (standard course) that he would eliminate the course! Minsky may have been guarded about being seen as part of a particular heterodox group, not because he was cutting edge mainstream, but because he was too original to be boxed in a particular label.”

Thursday, April 5, 2012

The Keen versus Krugman exchange seems as good a time as any to write up a bibliography on one of the main subjects they debated: endogenous money theory.

The foundation of the modern Post Keynesian endogenous money theory is Basil Moore’s Horizontalists and Verticalists: The Macroeconomics of Credit Money (Cambridge and New York, 1988). But an excellent starting point is also P. Arestis and M. Sawyer (eds), A Handbook of Alternative Monetary Economics (Cheltenham, UK and Northampton, Mass., 2006).

Wednesday, April 4, 2012

I have been a bit slow in posting about this subject. As many people probably already know, there has been something of an epic debate between Paul Krugman and Steve Keen, on a number of issues, but, above all, the subject of endogenous money.

One annoying thing I find: Steve Keen is a Post Keynesian, influenced by Hyman Minsky’s financial instability hypothesis. Steve Keen is not, strictly speaking, an MMT macro-economist, though it is true that there is a great deal of overlap between Post Keynesianism and MMT (for the emergence of MMT from Post Keynesianism, see here). Nor is endogenous money theory an invention of MMT: it goes right back to the 19th-century Banking school (Wray 1998: 32–33), was held by Wicksell and Schumpeter, entered Post Keynesian economics as early as the work of Joan Robinson and Nicholas Kaldor (although the classic text is the later work of Moore 1988), and is of course supported by MMT too. There is no doubt that a number of the old American Institutionalists (like John Kenneth Galbraith) supported endogenous money theory as well, as do many other modern heterodox economists (e.g., James Galbraith). (As a matter of historical interest, the great Post Keynesian economist Nicholas Kaldor used endogenous money theory to smash the monetarism of Milton Friedman and its vulgar supporters.)

A review of the debate in this video on RT, with an interview with Steve Keen. Some silly stuff at the beginning, but one can skip through this and start at 1.59.

Tuesday, April 3, 2012

This is an excellent lecture by Robert Skidelsky (Emeritus Professor of Political Economy at the University of Warwick) recorded on 7 October, 2009, on Keynes, a critique of neoclassical economics, and the financial crisis of 2008 and resulting global recession.